The illusion of control

In general policy discussion there seems to be a growing acceptance that a government needs to steer the economy.  However, this entire discussion ignores one important issue can the government really steer the economy, or recognise what the impacts of policy will be before putting it in place.  Trying to control what we observe, but don't understand, is more than likely going to make us all worse off.

One of the best recent examples of this illusion of control over society stems not from politicians, but from a scientist.  Sir Paul Callaghan has been vocal in his criticism of government policy calling for government to invest in high value industries, and try to push people away from industries that he believes generate little wealth.

On the face of it, such a call may seem appealing.  People generally value more wealth, as it allows them to purchase greater number of goods and services.  However, it is interesting to note that people don't just value the quantity of goods and services they can purchase we value our work, our family, and we make choices within these realms based on how we value them.

And this is where his argument falls down. He admits that New Zealander's "like to work in low-wage activities". Given the costs and benefits associated with working in different industries, people decided that this was what was in their best interest and for some reason he believes that we should force people to do other things, solely on the basis that we may increase some arbitrary measure such as GDP.

This partial way of thinking about social happiness and the distribution of goods within society is incredibly common. Depending on what policies a given political party wants to sell, they will focus either on the costs or the benefits of a policy not both.  Similarly, interest groups will often over sell their own position, either in the interest of "balance" or because they discount the costs and benefits of others.

As a result, merely relying on the statements of politicians, scientists, and other vested interest groups provides an impression that the government determines how well off we are and as a result it is their fault if some desire is not met.

However, it is not government that directly determines the scarcity of resources.  It is technology and the availability of inputs.  Individuals and firms have to make choices given this scarcity, and prices in the economy provide the signal that shows how relatively valuable/scarce resources are.  Institutions such as government do matter, but only insofar as they influence individual’s choices.

By looking at society this way, we can recognise that prices and the distribution of resources are determined directly by their availability and the value that people place on them not by some central authority.  In this way, the interaction of individuals is responsible for what we see around us, not government.

Once we accept this way of viewing the trade-offs in society, the idea that we can arbitrarily improve outcomes by catching Australia by 2020 or subsidising technological industries doesn't make much sense.  Instead we need to ask why people's choices could be negative impinging on others or themselves, and if this is the case we can ask how government can improve outcomes.

Now don't get me wrong, I think government and government intervention is important.  It is undeniable that a well-functioning government can improve social outcomes.  As long as government policy is put in place in the interests of society and based on a recognition of the limits of both knowledge and the ability to shape outcomes it is a good thing.

It is the belief that New Zealand is a company, one that requires measureable outputs and hands on management, that irks me.  New Zealand is the name of a place, where a group of individuals reside and make choices.  The New Zealand government is an institution that has been put in place to ensure that the democratic will of the people is followed not a set of managers who are supposed to tell us what to do.  The only "target” worth following is that of ensuring that the people of New Zealand are as happy as possible a target that is not measurable and is most likely to be achieved by allowing people to make their own choices insofar as it affects themselves.

The growing "nanny-statism" that exists right across the political spectrum is well intentioned, but it stems from an implicit lack of faith in individual responsibility and an excessive belief in the abilities of government to both control and improve our lot in life.

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